MISSISSAUGA, ON, Nov. 1 /PRNewswire-FirstCall/ - DRAXIS Health Inc. ; reported financial results for the third quarter and the nine months ended September 30, 2007. Consolidated revenues and earnings for the third quarter and the first nine months of 2007 were down from the same periods in 2006 primarily due to factors affecting the contract manufacturing business including reduced demand as a result of inventory adjustments by customers, continued production delays in contract manufacturing that prevented the shipment of planned quantities before the end of the quarter and severance costs, compounded by the continued rapid strengthening of the Canadian dollar versus the U.S. dollar. All amounts are expressed in U.S. dollars.
“The third quarter was negatively impacted by continued poor performance at our contract manufacturing division, due to the previously disclosed decline in production volumes of sterile products, particularly Hectorol(R) Injection, but compounded as well by lower margins in our radiopharmaceuticals division and a short-term delay in orders for selected products as a result of new inventory management policies recently adopted by a key customer,” said Dr. Martin Barkin, President and CEO of DRAXIS Health. “Results have also been significantly affected again this quarter by the continued and unprecedented strengthening of the Canadian dollar against the U.S. dollar. On a positive note, the signing of our significant contract with Johnson & Johnson Consumer Companies, Inc. bodes well for profitability growth in our contract manufacturing business. For this and the many other factors contributing to our long term growth, we continue to believe that 2007 and the first part of 2008 is a period when the Company will be in transition to be positioned for significant growth from late 2008 through to 2010 and 2011.”
Dr. Barkin also noted, “We have been proactive in addressing performance issues. Jean-Pierre Robert was appointed during the third quarter to head up DRAXIS Pharma as well as DRAXIMAGE. At DRAXIS Pharma, he has recently recruited a new head of quality operations and brought in a new head of engineering services. We have initiated a comprehensive realignment of accountabilities across the Company with the objective of reducing expenses associated with core operations to manage our cost structure in line with current revenue expectations and the rapidly accelerating value of the Canadian dollar. This includes a plan to reduce the number of corporate executives by one-third by the end of 2007. Many of these actions have already resulted in severance costs and will similarly impact results going forward, particularly the fourth quarter. When these initiatives are completed we expect that the Company will return to its historic levels of revenue and earnings growth.”
Two significant non-recurring items in the first nine months of 2007 positively affected financial performance relative to the first nine months of 2006. During the first quarter of 2007 the Company received a non-recurring milestone payment of $0.8 million from Shire BioChem Inc. and an insurance payment of $0.5 million from a business interruption insurance claim related to the extended shutdown period in 2005. The impact of these items on operating income (loss) and diluted earnings (loss) per share are included in the Schedule of Supplemental Information below.
Under the Company’s current Normal Course Issuer Bid, which began December 20, 2006 and which ends no later than December 19, 2007, approximately $0.7 million has been returned to shareholders as of October 31, 2007 through the repurchase for cancellation of 130,100 common shares at an average price of $5.27 (CDN$5.21).
Guidance targets for 2007, which were revaluated subsequent to the second quarter of 2007, have been subsequently reassessed following the third quarter of 2007, taking into account the following factors:
Due to the expected financial performance for 2007 resulting from the factors described above, the Company expects earnings per share to be at least 7 cents lower than the most recent guidance of 18 to 21 cents per share for 2007 and net operating cash flows to be at least $3 million lower than the target of $18 million, subject to working capital fluctuations. Our financial performance in the third quarter of 2007 is not expected to negatively impact the long term financial performance of the Company. Significant key milestones have already been achieved in 2007 consistent with the sources of future growth detailed below.
Guidance for Future Years
Beyond 2007, the Company no longer plans to provide specific quantitative guidance given an anticipated period of expansion and significant growth that is expected to be accompanied by periods of increased forecast variability. This growth will be driven by the following factors (not in any particular order):
Any and all of these factors will have an impact on the Company’s future growth to a degree that small changes in timing could have important impacts on short-term earnings.
This release includes by reference the 2007 third quarter interim financial report incorporating the full Management’s Discussion & Analysis (MD&A) as well as financial statements for the quarter and the nine months ended September 30, 2007 prepared in accordance with U.S. GAAP. The interim report, including the MD&A and financial statements, has been filed with applicable Canadian and U.S. securities regulatory authorities, is accessible on the Company’s website at www.draxis.com in the Investor Relations section under Financial Reports, through the SEDAR and EDGAR databases and is available upon request by contacting DRAXIS Investor Relations at 1-877-441-1984.
Conference Call
DRAXIS has scheduled a conference call to discuss third quarter 2007 financial results at 10:00 a.m. (ET) on November 1, 2007. This call can be accessed by dialing 1 (800) 819-9193 and using Access Code 4571610, and will also be webcast live with access through the Company’s website at www.draxis.com. The conference call will also be available in archived format on the Company’s website for 30 days following the conference call.
About DRAXIS Health Inc.:
DRAXIS Health, through its wholly owned operating subsidiary, DRAXIS Specialty Pharmaceuticals Inc., provides products in three categories: sterile products, non-sterile products and radiopharmaceuticals. Sterile products include liquid and freeze-dried (lyophilized) injectables plus sterile ointments and creams. Non-sterile products are produced as solid oral and semi-solid dosage forms. Radiopharmaceuticals are used for both therapeutic and diagnostic molecular imaging applications. Pharmaceutical contract manufacturing services are provided through the DRAXIS Pharma division and radiopharmaceuticals are developed, produced, and sold through the DRAXIMAGE division. DRAXIS employs approximately 500 staff in its Montreal facility.
For additional information please visit www.draxis.com
This MD&A contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and as contemplated under other applicable securities legislation. These statements can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “plan,” “intend,” “believe” or other similar words. These statements discuss future expectations concerning results of operations or financial condition or provide other forward-looking information. Our actual results, performance or achievements could be significantly different from the results expressed in, or implied by, those forward-looking statements. You should not place undue reliance on any forward-looking statement, which speaks only as of the date made.
These statements are not guarantees of future performance. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks, uncertainties and other factors that may cause the actual results or performance of the Company to be materially different from such statements or from any future results or performance implied thereby. Factors that could cause the Company’s results or performance to differ materially from a conclusion, forecast or projection in the forward-looking statements include, but are not limited to:
For additional information with respect to certain of these and other factors, and relating to the Company generally, reference is made to the Company’s most recent filings with the United States Securities and Exchange Commission (available on EDGAR at www.sec.gov) and the filings made by the Company with Canadian securities regulators (available on SEDAR at www.sedar.com). The forward-looking statements contained in this document represent the Company’s expectations as at October 31, 2007. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
CONTACT: DRAXIS Health Inc., Jerry Ormiston, Executive Director, Investor
Relations, Tel: 1-877-441-1984
